We currently live in the era of black swan events.
Black swan events are rare and unpredictable occurrences with a profound and far-reaching impact, challenging conventional assumptions and risk management practices. They often catch people and organizations off guard, leading to significant disruptions and altering the course of history.
We’re all well aware that we are living in a unique period of history, where these type of events have become the norm. From the global pandemic to the supply chain crisis to the invasion of Ukraine – over the past three years alone, we’ve seen black swans flying left and right.
So how can companies survive with the constant disruption, much less thrive in this era? According to Dawn Tiura, CEO and President of Sourcing Industry Group, the best way to prepare for uncertainty is by mitigating risk.
New era = new contract risks
In her main-stage presentation at the recent Agiloft Summit 2023, Dawn argued that black swan events expose businesses to major contractual risks. These risks are wide-ranging, and they include financial risk, reputational risk, supply chain risk, and even risk of sanctions.
When Russia invaded Ukraine, new risks came up that Dawn had never considered.
“Now, I certainly have to look at all my contracts and say, ‘Who do I have that now might be on a sanctions list? Who am I selling to that might resell my product into a finished good going to Russia? That is not allowed.’ So I have to know who the buyers of my products are, where they’re selling from me. They buy it from me, they sell it again, and where does it go in manufacturing? Does it end up in Russia? If so, I can be fined,” she said.
In another anecdote, Dawn shared how a casino’s wireless network got hacked, making them vulnerable to data leaks and theft. And the source of this security vulnerability? An independent contractor who connected to the casino’s network – and there was no clause in the contract about connecting to the local network.
The rise of technology, geopolitical instability, and the general speed at which the world is evolving exposes businesses’ contracting to risks for which many were prepared. So, while risk may expose the organization to any number of issues, the ability to foresee it and overcome it also ensures that the organization not just survives but thrives in the face of volatility.
“Risk is everywhere, and this is why it’s everyone’s job to be aware of it,” Dawn said.
Steps to improving risk mitigation
According to Dawn, effective risk mitigation can be the difference that contributes to the company’s success when faced with black swan events.
“Everything that happens, we can impact play as it’s happening on the field right now and change what’s going to come out in the financial statements, change what’s going to go to the shareholders. We can mitigate that risk and be the heroes,” she said.
Below are some of the steps Dawn shared for how you can improve risk mitigation in your organization:
1. Monitor all contracts for clauses regarding reporting and identifying risks
2. Make sure you have a well-defined Force Majeure clause in contracts
3. Ensure you are using best practices for your risk management structure
4. Understand how the contours and interrelationships of existing risks may change
5. Anticipate future risks before they develop and have mitigation strategies in place
The CLM difference
While the above steps can certainly prepare your organization for black swan events, they could still be insufficient without the right tools. In order to overcome disruptions, you need a technology solution that offers speed, agility and flexibility. This is why Dawn advocates for a powerful contract lifecycle management (CLM) software like Agiloft.
CLM can help mitigate risk because it provides transparency over all your contracts. The real-time visibility provides critical information like contract status and obligations, ensuring your business is following legal and regulatory requirements and avoiding financial liabilities.
Another critical tool to have in your CLM arsenal? AI, Dawn said.
“If you don’t have a contract management system that uses AI, bless your heart… because you’re going to die. You’re going to get massacred somewhere,” she said.
She highlighted Agiloft’s ConvoAI – a search feature that allows users to find contracts by typing questions in natural language.
“When I heard about ConvoAI, I was so excited because these are the questions we’ve been asking, ‘Which contracts have this kind of termination clause? Which contracts make us identify our fourth parties? Which contracts have force majeure?’” Dawn said. She argues that understanding these clauses in your contracts is essential in protecting the company.
A good CLM solution has a robust workflow engine where you can automate every step of the contract lifecycle, from creation to approval to renewal. This eliminates manual, error-prone processes and ensures your best people are freed up to focus on more strategic initiatives.
“You’ve got to be digitized as much as you humanly can because smart people don’t want to do dumb work. So, get it digitized. Get it automated,” Dawn says.
Are you prepared to face future black swan events?
In preparing for a black swan event, CLM is an indispensable tool. CLM’s ability to ensure compliance, improve risk management, and enhance contract visibility enables organizations to navigate unforeseen challenges with agility and confidence. By streamlining contract processes and providing real-time insights, CLM empowers businesses to be resilient and well-prepared for the unexpected.